Income Tax Slabs for Salaried Individuals in FY 2025‑26: A Step‑by‑Step Guide

Introduction – What Are Income Tax Slabs?

Understanding income tax slabs helps you map your salary against the current rates and plan for deductions, investments, and cash flows. In FY 2025–26, the new tax regime remains the default, featuring broader slabs and concessional rates, while the old tax regime remains optional and is often preferred by taxpayers who can claim substantial deductions/exemptions (e.g., 80C, 80D, HRA, LTA).

A smart approach for salaried individuals is to

(a) compute tax under both regimes
(b) factor in the standard deduction applicable within each regime
(c) evaluate the Section 87A rebate treatment in the new regime to see if you qualify for nil tax.

Quick snapshot:

• New regime (FY 2025–26): Wider income tax slabs, ₹75,000 standard deduction for salaried/pensioners, Section 87A rebate on taxable income up to ₹12,00,000 (effective for gross income up to ~₹12.75 lakh for salaried individuals), and marginal relief for taxable incomes slightly above ₹12,00,000 up to ~₹12.70 lakh (effective for gross income up to ~₹13.45 lakh for salaried individuals).
• Old regime: Traditional slabs, ₹50,000 standard deduction, and a fuller menu of exemptions and deductions.

This article provides a step-by-step guide to help salaried employees understand income tax slabs for FY 2025–26, calculate salary tax liability, and make informed decisions between the new and old regimes.

Income Tax Slabs for FY 2025–26

The Government of India has notified the applicable income tax slabs under both regimes. The new tax regime is the default from FY 2023-24, but individuals may opt for the old regime while filing their return.

Table 1: Income Tax Slabs FY 2025-26 (New Regime – Default)

The new regime’s tax slabs for FY 2025–26 are designed to provide relief through lower rates and wider income bands, making it appealing for those with fewer deductions. Below is the detailed slab structure, which applies progressively, taxing only the portion of income within each band at the corresponding rate.

These income tax slabs in the new regime were proposed in the Finance Bill, 2025, and are reflected in the Income Tax Department’s Budget FAQs. The updated slab structure, higher standard deduction, and enhanced rebate ceiling make the new regime more competitive than in previous years, particularly for salaried individuals with incomes up to ₹12,75,000. The progressive taxation ensures fairness, with higher rates applied only to incremental income.

Table 2: Income Tax Slabs FY 2025-26 (Old Regime)

The old regime remains a viable option for those who can leverage its extensive exemptions and deductions to reduce taxable income. The slabs below outline the tax rates, which are higher than the new regime but offset by the ability to claim multiple deductions.

Under the old regime, salaried individuals benefit from a ₹50,000 standard deduction, along with popular deductions like Section 80C (up to ₹1.5 lakh for investments like PF, ELSS, or home loan principal) and exemptions like HRA and LTA, subject to eligibility. If your deductions are substantial, the old regime may result in lower tax liability despite its higher rates. Comparing both regimes by calculating your tax under each is a practical way to choose the most beneficial option.

You can read more about the differences in our detailed guide: Old vs New Tax Regime: Key Differences.

Step-by-Step Guide to Calculating Salary Tax

Tax calculation may appear complicated, but breaking it into steps makes it manageable. Whether you’re filing for the first time or a seasoned professional, this process ensures you don’t miss key deductions or exemptions.

Let’s walk through how a salaried employee can calculate their income tax under the new regime.

Step 1: Identify total annual salary income

Start with your gross income. Include all salary components such as:

• Basic salary
• House Rent Allowance (HRA) (if applicable)
• Special allowances
• Bonus and incentives

These components collectively form your annual income base, which determines your initial tax bracket.

Ensure you account for perquisites (e.g., company-provided car) and other incomes like fixed deposit interest. In the old regime, exemptions like HRA or certain allowances may reduce taxable income, subject to specific rules. In the new regime, such exemptions are generally unavailable, making the standard deduction and rebate critical for tax savings.

Step 2: Check applicable exemptions and deductions

• Under the new regime, most deductions like Section 80C (PF, ELSS, life insurance) are not available, but salaried individuals can claim a standard deduction of ₹75,000. A rebate under Section 87A makes tax nil for income up to ₹12 lakh (effective up to ₹12.75 lakh for salaried after standard deduction).
  • Standard deduction: ₹75,000 for salaried individuals and pensioners, reducing taxable income.
  • Section 87A rebate (resident individuals only): Up to ₹60,000 when taxable income ≤ ₹12,00,000, making the final tax nil.
  • Special-rate income (e.g., capital gains/lottery) doesn’t qualify for the 87A rebate; the rebate applies only to slab-rate tax.
  • Marginal relief applies when income slightly exceeds ₹12,00,000, limiting tax liability.
• Under the old regime, you can claim multiple exemptions (HRA, LTA) and deductions (80C, 80D, etc.).
  • Standard deduction: ₹50,000 for salaried individuals, a straightforward benefit for all employees.
  • Deductions/exemptions like 80C, 80D, HRA, and LTA may be claimed if conditions are met, offering flexibility for tax planning.

Step 3: Apply tax slabs

Match your taxable income (after standard deduction in new regime) to the correct slab. Under the new regime, apply each tax rate incrementally to the portion of income within each slab. This approach ensures that lower income portions are taxed at lower rates, while higher portions attract higher rates, aligning with the principles of progressive taxation.

Step 4: Apply rebate (if applicable), then add surcharge and cess

• Rebate (new regime only): Under Section 87A, a rebate of up to ₹60,000 ensures zero tax liability for taxable income up to ₹12,00,000.
• Marginal relief (new regime only): If your taxable income slightly exceeds ₹12,00,000, marginal relief ensures tax does not exceed the amount by which your taxable income exceeds ₹12,00,000, available up to approximately ₹12,70,000 taxable income (~₹13,45,000 gross for salaried individuals after the ₹75,000 standard deduction).
• Cess & surcharge: Add a 4% Health and Education Cess on the total tax plus surcharge. For incomes exceeding ₹50 lakh, a surcharge applies at rates depending on the income level (e.g., 10% for ₹50 lakh to ₹1 crore, 15% for ₹1 crore to ₹2 crore, etc.).

These components—rebate, marginal relief, cess, and surcharge—finalize your tax calculation. The marginal relief mechanism is particularly beneficial for those near the ₹12,00,000 threshold, ensuring that small increases in income don’t lead to disproportionate tax burdens.

Step 5: Arrive at net tax liability

Example – Salary Tax Calculation (FY 2025-26, New Regime)

• Annual gross salary: ₹9,50,000
• Deduct standard deduction: ₹75,000
• Taxable income: ₹8,75,000
• Tax calculation (before rebate):
  • Up to ₹4,00,000 → Nil
  • ₹4,00,001 – ₹8,00,000 → 5% = ₹20,000
  • ₹8,00,001 – ₹8,75,000 → 10% = ₹7,500
• Total tax before rebate = ₹27,500

Since taxable income (₹8,75,000) ≤ ₹12 lakh, apply Section 87A rebate: Tax reduced to ₹0

• Add 4% cess: ₹0
• Net tax liability = ₹0

This simple method helps individuals estimate taxes in minutes, and with the enhanced rebate, many middle-income earners pay nil tax.

Example A (new regime):

Income = ₹12,00,000 (salaried)

• Taxable income (after ₹75,000 standard deduction) = ₹11,25,000
• Compute slab tax, then apply Section 87A rebate up to ₹60,000 ⇒ final tax = ₹0.

Example B (new regime with marginal relief):

Income = ₹12,85,000 (salaried)

• Taxable income (after ₹75,000 standard deduction) = ₹12,10,000
• Slab tax ≈ ₹61,500 (as per official FAQ illustration).
• Marginal relief reduces payable tax to ₹10,000 (equal to the amount by which taxable income exceeds ₹12,00,000).
• Cess: 4% of ₹10,000 = ₹400
  Net tax liability: ₹10,000 + ₹400 = ₹10,400

Example C (old regime comparison):

Income = ₹12,00,000 (salaried), deductions claimed ₹2,00,000

• Gross Total Income: ₹12,00,000
• Less: Standard deduction ₹50,000 ⇒ ₹11,50,000
• Less: Other deductions (80C/80D etc.) ₹1,50,000 ⇒ Taxable = ₹10,00,000
• Apply old regime slabs and cess ⇒ compare with new regime outcome to decide.

Common Deductions for Salaried Individuals

If you opt for the old regime, you can maximize tax savings by using deductions and exemptions. Below are the most commonly used ones:

• 80C planning: Maximize the ₹1.5 lakh limit with contributions to EPF, PPF, ELSS, term insurance premiums, or home loan principal repayments.
• 80D: Track health insurance premium receipts and preventive check-up payments to claim up to ₹25,000 (or ₹50,000 for senior citizens).
• HRA/LTA: Maintain rent receipts, travel tickets, and invoices to meet eligibility criteria for exemptions.
• Documentation: Organize a digital file of proofs to streamline ITR filing and ensure compliance during verification.

For a deeper dive, check out: Tax Planning Tips for Salaried Employees.

Checklist Before You File Taxes

Filing your income tax return accurately is critical to avoid errors, penalties, or missed savings opportunities. By preparing thoroughly, you can file with confidence and optimize your tax outcome, whether you choose the new or old regime. Before filing your return, use this checklist to avoid errors and maximize savings:

• Collect Form 16 from your employer.
• Verify income details with Form 26AS and AIS.
• Ensure all deductions and exemptions are properly claimed.
• Reconcile bank statements for interest income.
• Report additional income (e.g., freelance, rental).
• Choose between the old and new regimes wisely.

How to Choose the Right Regime

Choosing between the new and old tax regimes is a pivotal decision that depends on your income structure, financial commitments, and tax-saving opportunities. The new regime offers simplicity and lower rates, ideal for those with fewer deductions, while the old regime provides flexibility through exemptions and deductions, benefiting those with significant investments or expenses. By comparing the tax liability under both regimes, you can make an informed choice that aligns with your financial goals and minimizes your tax burden.

• New Regime is better if:
  • You have fewer investments or deductions but benefit from the standard deduction (₹75,000 for salaried) and enhanced rebate (nil tax up to ₹12 lakh).
  • You prefer lower tax rates with a simpler structure.
• Old Regime is better if:
  • You can claim significant deductions under 80C, 80D, HRA, etc.
  • You want flexibility in tax planning through exemptions.

A practical rule of thumb: If your eligible deductions (including the standard deduction) are low, the new regime’s wider slabs, rebate, and simplicity often result in lower taxes. However, if you have high deductions (e.g., home loan interest, which isn’t deductible in the new regime but can be claimed under the old regime’s loss from house property rules), the old regime may be more advantageous. Always calculate your tax liability under both regimes to make the best decision.

Refer to our guide: Income Tax Planning Guide for Salaried Individuals for 2025.

Try PNB MetLife’s Income Tax Calculator

Simulate your tax liability easily using PNB MetLife’s free Income Tax Calculator.

• Estimate your tax liability quickly
• Compare old vs new income tax slabs
• Strategize deductions effectively

This tool helps ensure you maximize savings and file with confidence.

Disclaimer: Tax benefits are subject to provisions of the Income Tax Act, 1961, and amendments made from time to time. Consult a tax advisor for personalized guidance.

Secure Your Financial Future with Smart Planning

While understanding income tax slabs for FY 2025–26 is a great start, true financial security extends beyond tax planning. PNB MetLife offers a spectrum of life insurance and investment solutions designed to protect your loved ones and build your wealth.

These plans bring powerful tax benefits, including:

• Section 80C deductions (up to ₹1.5 lakh per year) on life insurance premiums.
• Tax-free maturity or death benefits under Section 10(10D), subject to standard premium-to-sum-assured ratios.

Explore our Term Insurance Plans today to safeguard your family's future and enhance your financial strategy. Consult with a MetLife advisor to optimize your tax planning today!